Sibson, Segal Marco Model Pension Funding Status Rises to 93%

Increasing high-quality corporate yields help reduce pension liabilities.

The funded status of the model pension plan tracked by Sibson Consulting and Segal Marco Advisors rose two percentage points to 93% during the second quarter of the year. The firms attributed the result to a flat asset return combined with a 3% decrease in liabilities, which was due to an increase in high-quality corporate yields.

Returns for equity asset classes were mixed during the quarter, while global bonds performed poorly, according to Sibson and Segal Marco. Domestic stocks were the model pension plan’s top-performing asset class, recording positive returns each month of the quarter. US stocks outperformed both developed international stocks and emerging market stocks, as international stock sectors took a hit during the quarter because of the appreciating US dollar.

“Domestic stocks were the lone bright spot,” David Palmerino, vice president at Segal Marco Advisors, said in a release. “FOMC increased the target range for the Federal Funds Rate to 2%, its second increase this year, but the move was largely telegraphed and had no dramatic impact on bond prices.”

Among US stocks, small cap equities outperformed large caps during the quarter, while growth outpaced value for a sixth straight quarter. Fixed-income returns were split by geography as domestic bonds were modestly positive. Although the Federal Reserve increased the target range for the Federal Funds Rate to 1.75% to 2.00% there was no noticeable effect on domestic bond prices. International bonds, however, fell behind mainly because of a strengthening dollar. For the model plan, Sibson and Segal Marco said these aspects of investment performance contributed to the 0.05% gain in asset value during the quarter.

There was also a 3% decrease in the model pension plan’s liability due to a rise in yield-curve levels. The firms said that any change in the shape of the yield curve could have a dissimilar impact on liabilities for plans with different maturities. Yield increases were relatively consistent across maturities during the quarter, causing the overall shape to remain similar to the previous quarter, which the companies described as an upward sloping yield curve that peaks around 20 years and then levels off.